And yes it was a bailout.

It was a bailout of multi-billion dollar Venture Capital/Private Equity firms.

Lots of people tried to spin it like all of these startup companies were going to go under if depositors were not made whole. I heard more than a few talking heads on TV saying that we cannot let the most innovative sector of the economy fail due to a bank failure. The thing is though, all of those startups are owned by VC/PE firms. Those VC/PE firms were not going to let their prized startups (that could potentially be worth billions in the future) fail due to cash problems.

Take Mark Cuban. He was saying that depositors needed to be made whole because there were lots of startups that could go under. He then made it clear that the startups he is invested in are ok because he won't let them go under. He will use his own personal money to keep them afloat. Why is he going to keep them afloat? Is it because he is a nice person? No (even though I do think he is a nice person). He will keep them afloat because these companies have value as investments so he isn't going to let them go under.

My wife works at a semi-startup that is owned by a PE firm. When the news about SVB broke she received a companywide email from the CEO telling the employees that although the company had its funds at SVB, no one should worry because the parent PE firm would step in and cover any shortfalls. In fact, the biggest worry of the management of the company wasn't how to make the next payroll. The biggest worry was contacting all customers about outstanding invoices. Telling customers not to pay outstanding invoices until a new banking arrangement could be set up.

I have a friend from college who works for a fairly well-known startup. Even though I hadn't talked to him in a few years, I reached out to him and asked him if his company banked with SVB. He said yes, but he wasn't worried because the VC of his company already told his company that they would do what it would take to keep the company afloat.

The point is, most of the startups that had funds at SVB have someone like Mark Cuban, or some VC or PE firm behind them. Those people won't let most of the startups fail if they feel like they are still worth something as ongoing concerns.

Sure, VCs or PE firms may look at their portfolio of companies and decide that they do not have enough funds to keep all of their companies afloat. They may have to make some tough choices and let some of their weaker companies go under, but isn't that what capitalism is all about?

Bottom line, if a startup looks to be worth something as an ongoing concern, someone is going to give money to that startup to help keep them alive. It could have been the VC or it could have been a new investor. Instead it looks like the government is going to come to the VC\PE investor's rescue and provide the funds.

If I am not mistaken, Mark Cuban said the companies he had invested in had $8 to $10 million dollars of exposure to the SVB wreck. I don't know if that is before or after FDIC coverage and expected future payouts after SVBs assets are sold off. Either way, it doesn't matter. Mark Cuban will not have to go into his own pockets to help keep his own investments going. The government will do it for him.